The Role of Control Fraud in the Microfinance Crisis: A Qualitative Study Content Analysis of Five Microfinance Fraud Cases

Interest in the existence of control fraud in microfinance has been increasing. The problem however was the level of existing research was limited or non-existent. This was due in the part because some stakeholders and researchers recognized the existence of this fraud in the microfinance industry while others denied it. For instance, during the recent microfinance crisis, research as to what occurred focused more on the roles of borrowers' dishonesty and the ineptitude of loan officers. An important consideration was whether control fraud existed in the microfinance sector and what role it played during the microfinance crisis. The purpose of this study was to identify policies and procedures that regulators and practitioners must use to determine the appropriate guideline needed to stop or hinder control fraud. A qualitative descriptive multiple case studies was utilized. The researcher reviewed archival records comprising of five (5) major microfinance fraud cases and the records of the S & L scandals of the 1990s from areas where most human and financial losses were sustained. The study revealed that the characteristics of control fraud such as internal control weaknesses, embezzlements, visceral hatred for regulation, and political interferences that were present in the savings and loans scandals were also observed by researchers and investigators during the microfinance crisis. As a result of the observed characteristics, the opinions of increasing number of stakeholders have shifted. More stakeholders now agreed that upper management perpetrated fraud, control fraud permeated the sector, and it contributed to the microfinance crisis. However, the study showed that the rules and regulations currently in place did not address the role of management in control fraud adequately or hold them more accountable. Dissenters still argued that it is difficult to identify control fraud as the only source of the problem. This study is a contribution to the control fraud theory and to the debate about its existence in the microfinance sector.